News & Events

Beware Of Fertilizer Price Hike Impact On Oil Palm Industry

LAHAD DATU, Mon. (Aug 4, 2008) - Malaysian and Indonesian authorities need to work together to find solutions to capping the sharp increase in fertilizer prices.

Fertilizers make up about 60 per cent of the cost in producting a tonne of crude palm oil. The continual increase in prices can have serious impact on the industry and also the government's anticipated revenue from the oil palm windfall tax, said Dr Pang Teck Wai, the Chief Executive Officer of POIC Sabah Sdn Bhd.

He was briefing the visiting Deputy Minister of Plantation Industries & Commodities, Senator A. Kohilan Pillay and the Director-General of the Malaysian Palm Oil Board Dato Dr Mohd Basri Wahid. The briefing was held at the Global Bio Diesel factory located within the Lahad Datu palm oil industrial cluster (POIC Lahad Datu).

Malaysia and Indonesia are major consumers of fertilizers. The two countries are the world's major oil palm growers with a combined total of some 80 per cent of the world's palm oil.

Oil palm plantations require large volume fertilizers such NPK fertilizers because of its composition of nitrogen compounds, phosphate and potash) the raw materials of which are imported from various parts of the world. Sabah alone uses more than one million tonnes of fertilizers per year.

Over the last two years, the prices of NPK fertilizers have almost doubled. The Statistics Department's record shows that per-tonne price of all types of fertilizers in Sabah rose from RM473 in 2002 to RM752 in 2007.

Malaysia and Indonesia can use their leverage as a major consumer to bring the fertilizer companies to the negotiation table, said Dr Pang.

He cited the example the success of rubber producing countries (Malaysia, Indonesia, Thailand) in compelling major consuming countries to agree to pay better prices for rubber. From its lowest level of RM1.50 per kg in 2001, latex price touched RM7.18 last month due to market intervention.

(Major plantation companies such as IOI Corp Bhd and Sime Darby Bhd are planting more rubber on marginal soil and hilly areas. The investment returns on one hectare of rubber is better than that of oil palm in marginal soil, according to reports.)

Dr Pang said that the recent downward trend in CPO prices (about RM2,900 last week compared to high of over RM4,000 few months prior) and the sharp increase in transportation and fertilizer costs are putting a dent in planters' bottom line.

"The revenue the government expected from the oil palm windfall tax can be wiped out if this price trend continues," Dr Pang opined.

In fact, the oil palm sector may no longer be a very profitable industry if fertilizer prices continue to increase as they had in the last two years.

Price of fresh fruit bunches (the source of income for oil palm smallholders) has also dropped from the height of RM700 per tonne to under RM500 per tonne in recent months. Planters here lamented that RM300 for a tonne of FFB 'used to mean a healthy profit' but the threshold is now about RM400.

The Windfall Profit Levy Act 1998 replaced the cooking oil cess on July 1, 2008. Since then, oil palm plantations in Peninsular Malaysia have to pay 15% of the difference between the market price of CPO and the threshold price of RM2,000 per tonne. Plantations in Sabah pay 7.5%. Recent price trends have prompted oil palm growers to ask the government to review the threshold price.

Meanwhile, Dr Pang also urged the Malaysian authorities to look into ways of facilitating the movement into Sabah the massive volume of palm oil being produced by the Kalimantan provinces of Indonesia saying that the availability of the feedstock would boost tremendously Sabah's palm oil downstream processing industries.

He said Sabah's overall superior investment climate and industrial infrastructure, especially at POIC Lahad Datu, will attract global oleochemical and pharmaceutical companies to invest in Lahad Datu if some of Kalimantan's palm oil is made available.

Mr Pillay and Dato Basri also received a briefing on Global Bio Diesel's operation by its Director Mr Kim Sang Moo who told the visitors that the company's plan to expand its biodiesel production capacity to 500,000 tonnes per year is being delayed due to the prohibitively high price of crude palm oil.

They later toured Global Bio Diesel's sprawling complex on a 40-acre site.